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No. 13 "Economic Security: A Study of Proposed Legislation - Its Advantages, Its Dangers, and Its Background" February 4, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_13 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 13 "Economic Security: A Study of Proposed Legislation - Its Advantages, Its Dangers, and Its Background" February 4, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. the lead. The movement for such pensions traces back to the White House Conference on the Care of Dependent Children, called by President Theodore Roosevelt in 1909. This conference directed national attention to the fact that it was not only socially desirable to keep dependent children in their home environments, but also in many cases it was cheaper than maintaining them in state or local institutions. The first definite legislation for mothers' pensions was enacted in Missouri in 1911, but it applied only to the county in which Kansas City is located. The first statewide law was that of Illinois, enacted in the same year. Colorado followed suit in 1912 and in 1913 mothers' pensions were established in 17 other states. Mothers' pensions are now being paid in all but three states. At first only widows were eligible, but the laws were gradually broadened to include women who were dependent because of desertion, divorce, imprisonment or insanity of their husbands, or other causes. Several of the states specifically include unwed mothers, and in others unwed mothers are covered by administrative practice. The statutory age limit on allowances for children is usually 16 years, but scarcity of funds during the depression has caused some states to reduce the limit in actual practice to 14 years. Studies made by the Children's Bureau indicate that about 280,000 children in 109,000 families are now covered by mothers' pensions. The average pension is about $28 a month per family and $11 per child. An act to provide Federal aid to maternity and infant welfare was in effect from 1922 to 1929. Renewal of appropriations under this act was recommended by Presidents Coolidge and Hoover, but no action was taken by the Congress. The pending Wagner-Doughton Bill covers a tremendously broad field. If passed, none of its provisions becomes effective before the fiscal year 1936. The Federal tax on payrolls under the unemployment insurance plan is not effective until January 1, 1936, and the tax on earnings and employment for old age pensions not until January 1, 1937. In these circumstances there can be no excuse for hasty action. There should be enacted after due consideration a law or laws which within our Constitutional system will provide a substantial measure of economic security without jeopardizing the credit of the government or imposing an excessive burden on industry. â˜… â˜… Economic Security A Study of Proposed Legislation Its Advantages, Its Dangers, and Its Background â˜… â˜… â˜… "It is overwhelmingly important to avoid any danger of permanently discrediting the sound and necessary policy of Federal legislation for economic security by attempting to apply it on too ambitious a scale before actual experience has provided guidance for the permanently safe direction of such efforts.'* Franklin D. Roosevelt January 17,1935 * AMERICAN LIBERTY LEAGUE T^atuynal Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. â˜… â˜… Document No. 13 February 4, 1935 Economic Security * The following basic principles are suggested for consideration by the Congress in its action upon the pending Economic Security Bill: 1. Existing conditions due to the depression warrant a most sympathetic attitude toward both unemployment insurance and old age pensions. 2. The legislation is not of an emergency character. It should be given the most careful consideration by the Congress. The various subjects should be separated into independent measures in accordance with the ordinary procedure. 3. Any legislation enacted should be based on sound fiscal policies and should not impose an excessive burden upon the Federal government. A serious question as to the effect of proposed old age pension plans upon the finances of the government in future years has been expressed in the report of the President's Committee on Economic Security. 4. Any old age annuity system established by the Federal government based on contributions by employers and employees should be self-sustaining. 5. To the greatest extent possible all social insurance plans should involve reliance upon the cooperation of the states. While it was intended under the Constitution that all matters affecting the private lives of the people should be cared for by the states, it has become customary that the Federal government grant some measure of assistance. 6. Taxes imposed upon industry for unemployment insurance and old age pensions should not be so burdensome as to retard recovery. 7. Unemployment insurance, amply safeguarded, should tend to place upon industry a proper responsibility for a stablization of operations. 8. There may be justification for the exercise of the Federal taxing power to assure the enactment of unemployment insurance laws by all the states, but the attempt in the pending bill to compel the states to write into their laws controversial collective bargaining provisions is an improper use of Federal authority. Summary of Bill The Wagner-Doughton Bill, based upon recommendations of the President and his Com- mittee on Economic Security, is a most far-reaching measure. It contains eight titles and covers 65 printed pages. Title I provides for grants-in-aid to the states for old age pension systems. There is appropriated $50,000,000 for the fiscal year 1936 and $125,000,000 for each fiscal year thereafter. Of these funds 99% per cent shall be apportioned among the states to match their outlays, the limit of Federal contribution being $15 per month per person benefited. Title II appropriates $25,000,000 for each fiscal year, commencing in 1936, for so-called "mothers' pensions" for the care of dependent children. Of the amount 99% per cent shall be apportioned among the states on a basis of one-third of the expenditures of the states and local governments. Title III imposes an "earnings tax" and an "employment excise tax" to finance a Federal old age pension system, deficits of which would be borne by the Federal government. The earnings tax is levied upon all employees in all classes of industry and agriculture who, on January 1, 1937, are less than 60 years of age, with the exception of non-manual workers receiving more than $250 per month. The employment excise tax is levied upon all employers except the Federal government, the states and railroads subject to the Railway Retirement Act. The rates of the earnings and employment taxes are the same. Both are collected from the employers who deduct the employees' share from their compensation. The aggregate of the two taxes represents one per cent of total payrolls, commencing January 1, 1937, and increases by one per cent every five years until it reaches a maximum of five per cent January 1, 1957. Title IV establishes a Social Insurance Board of three members. It will supervise the Federal old age pension system, issue old age annuities at cost, assist the states in the administration of unemployment compensation laws and make recommendations with respect to all forms of social insurance. There is appropriated $5,000,-000 for the fiscal year 1936, and $50,000,000 for each fiscal year thereafter for the administration of unemployment compensation laws. From these appropriations the sum of $4,000,000 in 1936 and $49,000,000 in each year thereafter will be turned over to the states for use in connection with their individual laws relating to unemployment compensation. The Title also includes provisions with reference to the Federal old age pension fund. Title V provides for the issuance of annuity 3 certificates to citizens at such prices and on such terms and conditions as the Social Insurance Board may determine. The largest possible annuity would be $100 per month after a person reaches the age of 65 years. Title VI imposes a tax on payrolls in connection with a Federal-State unemployment compensation system. The rate of the tax will be either one, two or three per cent, depending upon the progress made toward economic recovery as measured by the index of production of the Federal Reserve Board. Beginning in 1938 the rate will be uniformly three per cent. A credit is allowed against the tax for contributions made by employers for unemployment compensation purposes under state laws up to a maximum of 90 per cent. From the remaining 10 per cent is to be obtained the $50,000,000 appropriated annually under Title IV. Employers subject to the tax are all persons and corporations other than governmental bodies employing more than four persons. Title VII appropriates for each fiscal year commencing in 1936 $4,000,000 for maternal and child health activities, $3,000,000 for the care of crippled children and $1,500,000 for child welfare, 95 per cent or more of these amounts to be allotted to the states. Title VIII appropriates $10,000,000 to the Public Health Service for each fiscal year commencing in 1936. Of this amount $8,000,000 will be allotted to the states to develop health services while $2,000,000 will be retained by the Public Health Service for further investigation of disease and problems of sanitation and related matters. Good and Bad Points The leaders of industry recognize to an increasing extent their responsibilities in the matter of a regularization of employment. The plan of unemployment compensation in the Wagner-Doughton Bill gives an incentive to industry to maintain employment on a uniform basis. In general, its terms are less burdensome to industry than measures previously before the Congress. Authority to determine the exact forms of unemployment compensation is left in the hands of the states. The plan will not impose an excessive burden upon the Federal government either now or in the future. The responsibility for success or failure will rest largely in the respective states. It is conceded that unemployment insurance still is in the experimental stage despite many years of experience in European countries. 4 The situation with respect to old age pensions is less clear. The pending legislation imposes a huge burden upon future generations of taxpayers. Its sponsors frankly admit that the plan of compulsory contributory Federal old age annuities is not self-sustaining. The grants-in-aid to the states under the separate non-contributory plan may also reach very large amounts. The administration is to be commended for having resolutely opposed fantastic schemes for old age pensions. In comparison with such vagaries as the Townsend Plan the proposal in the pending bill is altogether conservative. 1 Nevertheless, the lowest official estimate of the * annual cost to the Federal government of the combined Federal and Federal-State old age insurance plans 45 years hence is nearly I $2,000,000,000. Obviously, no plan involving such a large outlay should be approved without the most careful consideration. On its face the Wagner-Doughton Bill does not appear to impose an unduly heavy burden upon the Federal government. It appropriates a total of $98,500,000 for the fiscal year 1936 and $218,500,000 for each year thereafter. Actually, it will be impossible to avoid very large increases in later years. This must be taken into account in embarking upon the enterprise. The cost of unemployment compensation to the Federal government can be determined with some degree of definiteness over the years. Such uncertainties as exist will be the problem of the states and of industry. The items for dependent children, crippled children, child welfare, maternity aid and public health are certain to be increased as the years go on. The most indefinite factor is the cost of old age pensions. The $218,500,000 total includes s $125,000,000 for apportionment among the states for non-contributory old age annuities. It is admitted by the authors of the plan that the â€¢ cost to the Federal government of the state-aid non-contributory plan will increase gradually to as much as $500,000,000 annually, assuming that there is in operation simultaneously the Federal compulsory system, or to a total of $1,400,000,000 if no Federal system is established. The most costly feature of the entire program eventually will be the compulsory Federal annuity system for which no appropriations whatever are made in the pending bill. The reason no appropriations are made is that unearned annuities are paid in the early years by 5 borrowing from reserves which are being built up for the younger generation. The Wagner-Doughton Bill embraces four subjects which might properly be separated into different measures. These are unemployment compensation, old age pensions, child and maternity welfare and public health. None of the propositions involves an acute emergency in the sense that is true in direct relief. There is no provision which is immediately effective. All of these subjects have been before the Congress for many years. The committees which have studied them in the past are different bodies from the revenue raising groups to which has been assigned the pending bill because of its taxing features. The subjects were entirely new to the committees which have the bill in charge. To lump all of the different propositions into a single measure without an opportunity for separate consideration is not conducive to the framing of good legislation. The plea for speedy action is based on a desire to give state legislatures now in session an early opportunity to enact security measures of a complementary character. The many subjects involved are too important to be acted upon by the Congress without adequate consideration. It should be possible to obtain prompt action in the states through special sessions of legislatures in cases where adjournment may have been taken in advance of the enactment of a Federal law. Unemployment Insurance On the basis of foreign experience with systems of unemployment insurance and American experience with relief during the depression, it is generally agreed that unemployment insurance is not a cure for the unemployment problem. It is intended chiefly to care for unemployment in normal times. It cannot cope adequately with depressional unemployment. It may help toward a leveling of business cycles. Chronic unemployment must be dealt with by measures other than unemployment insurance. The unemployment insurance schemes must be accompanied by plans of unemployment relief to care for workers who lose their rights to insurance benefits, for workers in uninsured occupations and for those in insured occupations who cannot qualify for benefits. Unless accompanied by schemes of relief, the temptation to extend the benefits of unemployment insurance schemes to those not qualified under the law to receive them is likely to be irresistible, and the 6 solvency of the insurance fund would thereby be destroyed. An efficient system of employment offices is an essential part of any insurance scheme and the only means of preventing abuses. One of the most compelling reasons for action by the Federal government is the desirability of uniformity in the status of industry in the different states. There has been a reluctance by the states to enact unemployment insurance laws because of a fear that the industries affected would be at a disadvantage as against competitors in other states. The Federal tax provided by the pending bill without doubt will encourage the states to pass such laws. Moderate Tax Desirable The framers of the bill exercised good judgment in providing for a more moderate tax upon industry than the five per cent rate which was contained in the Wagner-Lewis Bill in the last session of the Congress. The testimony of Miss Frances Perkins, Secretary of Labor, before the House Ways and Means Committee disclosed that the rate was lowered to a maximum of three per cent at the instance of the Secretary of the Treasury who warned that a five per cent rate might be excessive. In the main the bill does not attempt to dictate to the states the type of law which they must enact. A state may adopt a plan similar to that of Wisconsin which provides for individual plant reserves financed entirely by employers. Or it may adopt a plan similar to that recommended by a commission of the State of Ohio whereby both employers and employees contribute to funds which are pooled on a statewide basis. Or it may adopt a plan under which employers, employees and the state contribute to the fund. The Wisconsin plan of individual plant reserves has the advantage of making it to the interest of the employer to regularize his operations so as to hold unemployment to a minimum. This advantage would appear to outweigh the arguments of those favoring a statewide pool. The chief point in favor of a statewide pool as against individual plant reserves is that there is a wider distribution of the risk. The states may fix their own benefit rates and waiting periods and also have direct responsibility for administration, but they are required to use the public employment offices for this purpose. It is provided that all funds collected by the states must be deposited in the United States Treasury to be invested and liquidated by the 7 Secretary of the Treasury. Certain minimum standards are prescribed which must be met by the state laws in order to entitle employers in those states to an offset against the Federal tax. Details Open to Question Some of the details of the pending bill call for a careful consideration by the Congress. For example, it may be questioned whether it is necessary to require that reserves equal to 15 per cent of a total payroll be accumulated before an employer may be relieved of further contributions to the fund. Section 602, which relates to credits allowable against the Federal tax in states which have enacted unemployment compensation laws, contains a provision which attempts coercion of the states in an unwarranted manner. One of the requirements is that a state shall not deny unemployment compensation "to otherwise eligible employees for refusing to accept new work under any of the following contitions: (1) If the position offered is vacant due directly to a strike, lockout, or other labor disputes, (2) if the wages, hours, and other conditions of the work offered are substantially less favorable to the employee than those prevailing for similar work in the locality; (3) if acceptance of such employment would either require the employee to join a company union or would interfere with his joining or retaining membership in any bona fide labor organization." Old Age Security-Provision for old age security is made in the Wagner-Doughton Bill in three different ways. There is a Federal old age annuity system for all employed persons, other than non-manual workers receiving more than $250 per month, administered by the Social Insurance Board. There are grants-in-aid to the states for pensions to old people in need. Administration of this system is in the hands of the Federal Emergency Relief Administration or its successor agency. There is a Federal system of voluntary annuities designed primarily for people of small incomes not covered by the compulsory system. This is administered by the Social Insurance Board. In his message to the Congress transmitting the recommendations of his Committee on Economic Security the President approved "compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations." The bill as 8 introduced does not achieve this purpose. The Federal old age fund will be used to pay annuities beginning in 1942 to all persons then over 65 years of age in whose behalf taxes have been paid for at least 200 weeks. The reason the fund is not self-sustaining is that the middle aged and older workers who enter the system before 1957 will receive annuities larger than justified by the reserves accumulated in their behalf. The excess rate of annuities is especially great for those entering before 1942, this being held to be necessary in order to guarantee security for those too old to build up adequate reserves. The payment of unearned annuities clearly involves too great a drain upon the Treasury. The annuity plan is designed as insurance rather than as a relief measure and should therefore be sound from an actuarial standpoint. Involves Huge Costs The gratuitous portion of the annuities must be paid by the Federal government. The report of the President's Committee states that if the Federal government pays it as it accrues, the cost will be $500,000,000 annually, commencing in 1937. Under the plan embodied in the bill, funds to meet gratuities will be drawn from current payments by the younger generation. The Federal government will defer the payment of deficits until total expenditures from the fund exceed total contributions. It is estimated that this point will be reached in 1965. The report of the President's Committee states that under this plan the contributions of the Federal government will reach a maximum of more than $1,400,000,-000 annually by 1980. Testifying before the House Ways and Means Committee on January 22, Secretary of Labor Perkins said: "A self-supporting system in every detail can be provided if you are willing to fix the contribution into the fund at four per cent instead of one per cent, the four per cent to be divided equally between the employer and the employee, with a gradual working up to six per cent instead of five per cent, and the time within which we go from four per cent to six per cent to be only 10 years instead of 20 years." The greater burden upon industry thus suggested raises the question of its ability to bear this tax in addition to the tax for unemployment insurance. It will be necessary to consider 9 this factor in a readjustment to place the fund on a sound basis. The Federal grants-in-aid toward meeting the cost of pensions paid to old people under state laws are to be on a 50 per cent basis. While the Federal part of the cost is limited to $15 per month in any case, there is nothing to prevent a larger contribution by the states. The Federal government pays one-half the cost of administration. Standards prescribed in the bill require payment of pensions to old people in need who are citizens of the United States and have resided within the state five years or more and who are 65 years of age or over, with the proviso that until 1940 any state may maintain a 70-year age limit. States may grant pensions on a more liberal basis if they wish to do so. The Federal grants-in-aid are designed to stimulate all states to enact liberal old age pension laws to care for those who do not come under the compulsory contributory Federal annuity system. The old age pensions by the States are intended to be on a non-contributory basis and it will be impossible therefore to avoid a continuous cost to the Federal government. States Aid System Also Costly Criticism has been offered on the ground that an annuity of $30 a month is inadequate. While the bill appropriates only $50,000,000 for the fiscal year 1936 and $125,000,000 for each year thereafter, per cent of the amounts to be apportioned among the states, a study of the report of the President's Committee shows that the actual cost will reach a much larger total. On this point the report says: "Only approximate estimates can be given regarding the costs of the proposed grants-in-aid. If a compulsory contributory annuity system is not established at the same time, actuarial estimates indicate that the Federal share of the cost of the non-contributory old age pensions may in the first year reach a total of $136,000,000; in the second year $199,000,000 and would increase steadily thereafter until it reaches a maximum of $1,294,300,000 by 1980. We believe that these estimates are too high, particularly in the earlier years, as they do not allow sufficiently for the lag likely to occur before all the dependent aged will actually be granted pensions. Since the total now expended for old age pensions is less than $40,000,000 per year and more than half 10 of the entire population of the country is in states which have old age pension laws, we are of the opinion that $50,000,000 will be sufficient in the first year to pay the Federal share of the old age pension costs. Thereafter, this figure will tend to increase rather rapidly, and by 1980 may reach the great total estimated by the actuaries. The estimates of the actuaries consulted by this Committee are in our judgment so high in estimated figures for 1980 that further careful studies must be given to them, with the objective of finding ways and means for reduction and limitation of estimated government contributions as of that year. "Obviously these figures will be reduced if a compulsory system of contributory annuities is established simultaneously with the Federal grants-in-aid. Sound financing demands this simultaneous action. The estimates of the actuaries indicate that if a compulsory system of contributory annuities is started by January 1, 1937, the Federal grants-in-aid to the non-contributory pensions will by 1980 total less than 40 per cent of the amount they will reach by that date if a contributory system is not started." There is a wide variance of opinion as to the number of persons who will receive old age pensions. It is estimated that at the present time there are between 7,000,000 and 7,500,000 people over 65 years of age, about 4 million who are over 70 years of age and about 11,500,000 who are over 60 years of age. It is estimated that by 1970 there will be 15,000,000 over 65 years of age and by 1980 more than 19,000,000. It has been stated that about half of the people now above 65 years of age have been reduced to a state of dependence. On a basis of 3,750,000 such persons, an expenditure of $15 per month by the Federal government would require $675,-000,000 instead of $125,000,000 as appropriated by the bill. The $125,000,000 appropriation is based on the assumption that many of these dependents will continue to be cared for by relatives or otherwise. The third part of the program for old age security, that which provides for voluntary annuities under the Federal government, is designed to give citizens an opportunity to purchase old age annuities at cost. The Federal government will contribute only the cost of administration, purchasers of annuities receiving amounts based upon their contributions. While the purpose is stated to be to issue annuities for smaller amounts than are ordinarily sold by life 11 insurance companies, the bill should be so restricted as to prevent any competition by the government with these companies. The doubtful points in connection with the entire field of old age security are so varied and perplexing that no action should be taken without exhaustive study. This does not mean that the Congress should ignore the problem or fail to give the needs of aged persons the most sympathetic attention. It is regrettable that many people have been misled into thinking that a fantastic proposal such as that known as the Townsend Plan is within the financial possibilities of our government. The proposed pension of $200 a month for all persons above 60 years of age as contemplated under that plan might mean an annual charge upon the government of as much as $24,000,000,000. Inasmuch as the total national income last year was not more than $40,000,-000,000 the payment of such a huge sum would be utterly impossible. The proposed two per cent tax on all financial transactions of whatever kind would mean a pyramiding which would cause an enormous increase in the cost of living. The tax also would not raise sufficient money to finance this scheme. There could be no other outcome for such a plan, if put into operation, than its complete collapse. Background of Social Insurance Social insurance has been a subject of agitation in this country for a number of years. Actual experience has been much less extensive than in European countries. Bills for unemployment insurance have been pending in Congress since 1915. The Senate Committee on Education and Labor made an investigation of the subject six years ago, reporting that government interference in the establishment and direction of unemployment insurance was not necessary or advisable at that time. It recommended that private employers should be encouraged to adopt voluntary systems. A special Senate committee three years ago also reported against a national system of unemployment insurance, suggesting that the situation be dealt with either by state laws or by voluntary reserves maintained by the industries themselves with the cooperation of the employees. The ideal solution, according to the Senate Committee, was voluntary establishment of adequate reserves by each plant employer. Senator Wagner, a member of that committee, submitted a minority report favoring legislation by the states. Both the majority and the minority reports favored tax concessions by the Federal government to employers making payments into unemployment reserve funds. Surveys which were made four years ago by the Bureau of Labor Statistics and by employers' organizations showed that at that time about 200,000 workers were covered by voluntary unemployment insurance plans. Meanwhile, unemployment insurance legislation was being pressed in the legislatures of all the industrial states. Commissions were appointed to investigate the subject in several of the states and an interstate commission, representing the governors of New York, Ohio, Massachusetts, Pennsylvania, New Jersey and Connecticut, was organized on the initiative of Franklin D. Roosevelt, then Governor of New York. The report of that commission in February, 1932, recommended compulsory establishment of statewide systems of unemployment reserves corresponding closely in detail with the system for which provision was made in Wisconsin in a law enacted January 28, 1932. The Wisconsin Plan The only unemployment compensation plan which has reached the statute books of any state to date is the Groves law in Wisconsin. The plan was approved by the legislature only after it had been modified, at the suggestion of Governor LaFollette, to give Wisconsin employers an opportunity to carry out their expressed desire to establish unemployment reserve plans voluntarily. The compulsory features of the law were not to take effect if employers of at least 175,000 persons had established, by June 1,1933, voluntary plans approved by the Wisconsin Industrial Commission. Otherwise, the act was to go into effect July 1, 1933, at which date contributions were to begin. The effective date of the law was postponed by the legislature in 1933, but it was permitted to come into force on July 1, 1934. Benefits are to be payable beginning July 1, 1935. The law applies to employers, including the state and its subdivisions, who had ten or more persons on their payrolls for at least four months during the preceding calendar year. Farm laborers, domestic servants, teachers, employees of interstate railroads, and a few other classes are specifically excluded from its provisions. Unemployment reserves are to be created through payment by each employer of two per cent of his payroll into a central state depository, the 12 13 money to be invested in government securities. The state is to serve as custodian and disbursing agent for the employers but is not to supplement the funds nor guarantee their adequacy. Separate accounts are to be kept for each employer and the funds in his reserve can be used only for payments to his own employees, to whom he is liable only to the amount of his reserve fund. The employer's contribution is to be reduced from two to one per cent when his reserve equals $55 per employee, and is to cease altogether so long as the fund amounts to $75 or more per employee. Benefits are to go to workers recently employed by an employer coming within the provisions of the act when they give notice of unemployment and are physically able to work and available for work. Compensation is to be in the ratio of one week of benefits to each four weeks of work during the preceding year with the employer from whom payment is sought. The maximum amount payable in any year is to be ten times the weekly benefit. For total unemployment the worker is to receive 50 per cent of his weekly full-time wages, with a maximum payment of $10 and a minimum payment of $5 a week. Workers on part-time earning less than the benefit for total unemployment will be entitled to benefits sufficient to make up the difference. Benefits are to go only to employees out of work through no fault of their own and for whom no work can be found. A waiting period of two weeks is to precede payments in order to give opportunity to attempt to place unemployed workers. No benefits will be payable to those out of work because of trade disputes. Workers must accept nearby work for which they are reasonably fitted, but they cannot be held ineligible for benefits if they refuse jobs open because of labor disputes or if they refuse to accept wages or work under conditions below prevailing standards. Those who have earned $1,500 or more in the preceding year will not be eligible for benefits. The Ohio Plan About half the unemployment compensation plans proposed in state legislatures since 1932 have been patterned after the Groves law. The other half have been modeled, in the main, upon the insurance plan prepared by the Ohio Commission on Unemployment Insurance. The Ohio plan differs from the Wisconsin plan in that contributions would be required from employees 14 as well as from employers. A second principal difference is that all contributions would be placed in a single state-wide fund, whereas under the Wisconsin plan separate accounts would be kept for each employer. Thus the Ohio plan is an "insurance" plan, as opposed to a "reserve" plan. The Ohio plan provides that employers shall pay two per cent of their payrolls and employees one per cent of their wages into the insurance fund. Fifty per cent of the worker's weekly wage would be paid to him over a maximum of sixteen weeks after a waiting period of three weeks, if he is totally unemployed. The benefit is not to exceed $15 a week. Most of the unemployment compensation proposals in other states have provided benefits at the rate of half the weekly wage, with a maximum between $10 and $15. Benefits are proposed for a maximum period of 10 to 16 weeks in any one year, with a waiting period usually of two weeks before the jobless become eligible for compensation. Defenders of the Wisconsin plan of company reserves assert that the provisions of the Groves law make it to the interest of the employer so to regularize his operations as to hold unemployment to a minimum. Opponents of the individual reserve plan assert that the principle of insurance requires a distribution of risk and therefore a single statewide pool into which all payments shall be made. Foreign Plans European countries have had extensive experience with unemployment insurance. What has happened abroad furnishes object lessons of the pitfalls which must be avoided. Thirty-five years ago the municipal authorities of Ghent began the subsidization of voluntary unemployment funds, thus inaugurating the "Ghent system" which has been copied, with variations, by nine countries of continental Europe Belgium, Czechoslovakia, Denmark, Finland, France, Netherlands, Norway, Spain and Switzerland. The numbers covered by the voluntary plans are relatively small. The number covered in France, for example, was only 165,000 in 1930. In Switzerland, with a population of about 4,000,000, on the other hand, the number covered in September, 1929, was 290,493. The Swiss system is part voluntary and part compulsory. Compulsory unemployment insurance as a function of the central government was inaugurated in Great Britain in 1911. The British 15 system was copied, with variations, by eight other countries Australia (Queensland), Austria, Bulgaria, Germany, Irish Free State, Italy, Poland and Russia. Russia's scheme, established in 1930 to cover 10,000,000 workers, has since been suspended on the ground that it was not warranted by necessity. The Swiss System Switzerland is a federated state and its plan, therefore, is of special interest to this country. Under that system, adopted in 1924, federal subsidies are granted to public funds, including those of cantons and municipalities, and private funds, including those of trade unions and joint employer-employee groups. In order to receive the subsidy a fund must have at least 200 members, must require contributions from the insured, and must submit to federal supervision. The rate of benefit is fixed by each fund. The federal law provides, however, that the maximum benefit in case of total unemployment must not exceed 60 per cent of the worker's normal earnings, if he has dependents, and 50 per cent if he is without dependents. The maximum duration of the benefits is three months in any year. The waiting period is only three days. The federal subsidy is 30 per cent of the benefits paid by trade union funds and 40 per cent of those paid by public and joint employer-employee funds. These percentages may be increased by 10 per cent in times of severe depression. In addition to federal subsidies and the contributions of participants, financial assistance comes also from municipal and cantonal subsidies. The federal unemployment insurance act allows the cantons to establish compulsory or voluntary systems of their own. All but one of the cantons have enacted legislation on the subject. About one-third of the cantonal systems are compulsory. Of the workers covered by insurance schemes in effect in Switzerland about 60 per cent are members of trade union funds, about 20 per cent of joint employer-employee funds, and about 20 per cent of public funds. The British Plan The first definite step toward making unemployment relief a state responsibility was taken in Great Britain, under the Asquith Liberal ministry, in 1909, with the passage of the Labor Exchanges Act. This act empowered the Board of Trade (the Ministry of Labor since its es-16 tablishment in 1917) to create and maintain employment exchanges throughout the country. The purpose of the exchanges was to provide a free public agency for filling vacant jobs. But "a special feature of the British system of exchanges," says an official report on the subject, is that they were founded "not solely or even mainly as placing agencies, but in order to prepare a machinery for the administration of unemployment insurance." The first Unemployment Insurance Act was adopted in 1911. First contributions became payable July 15, 1912, and benefits started six months later. This act insured about 2,250,000 workers in seven industries particularly subject to seasonal or cyclical fluctuations. Of the three parties to financial contribution the state took the smallest part, its share being about three cents a week (1.67d at the old par) for each insured worker. Each insured worker contributed five cents (2.5d at the old par) a week and the employer the same sum for each insured employee on his payroll. Out of the fund built up during the first six months, the insured person able to satisfy the employment exchange in his district that he was unavoidably unemployed was to be paid $1.70 (seven shillings) of benefit up to a maximum of 15 weeks in a year. In 1916 the number of workers insured by the state was increased to approximately 4,000,000 by an act extending the system to munition workers. A third step was taken in 1920 when unemployment insurance was made compulsory for virtually the entire industrial population, as well as for most non-manual workers receiving less than Â£250 a year. Agriculture, domestic service and government employees were excepted. Some 8,000,000 additional workers were brought under the system by the act of 1920. Weekly benefits of 15 shillings for a man and 12 shillings for a woman for not to exceed 15 weeks a year were allowed. In respect to each insured man the state contribution was made two pence a week, that of the employer and employee being four pence each. For women, and those under 18, the rates of contribution, as of benefit, were somewhat lower. The act of 1920 came into effect on November 8, 1920, at the commencement of the post-war depression. On November 7, 1920, the unemployment insurance fund had a surplus of Â£21,-826,000. Eight months later, due to the tripling of the number of persons insured by the act of 1920, the fund's surplus had been reduced to less than Â£1,000,000 and thereafter the fund incurred heavy deficits. 17 The Lloyd George government, seriously concerned by the growth of social unrest and fearing revolution, began a series of emergency unemployment insurance acts which rapidly broke down restrictions on the payment of benefits and would have reduced the fund to complete insolvency but for heavy borrowings from the Treasury. Provision was made in 1921 for the payment of "transitional" benefits in advance of contributions. This payment was based on the theory that the depression would be short-lived and that the employment fund could be made solvent in the future when income would exceed expenditure. The introduction of transitional benefits was the first and most serious abuse of the insurance scheme. Originally planned on an actuarial basis the scheme degenerated into a dole. The result of the various changes made during the early "twenties" was to require expenditures for support of the unemployed far in excess of the insurance fund's contributions from employers, employees and the state. It is generally agreed that the chief cause of the financial collapse of the scheme was the payment of transitional benefits to workers who had either exhausted their right to insurance benefits or were unable to qualify for benefits because they had not made the required number of weekly contributions to the insurance fund. The increase in the debt of the fund and the absence of any signs of recovery forced the Treasury in 1930 to assume the total burden of transitional payments. In the financial crisis that led to abandonment of the gold standard in 1931, rates of contribution were increased by the new Coalition government and rates of benefits were reduced in an attempt to restore the unemployment insurance fund to solvency. And in the Unemployment Insurance Act of 1934 a final separation of direct relief from unemployment insurance was effected with the entire cost of direct relief placed upon the state. Unemployment benefits were restored in 1934 to the rates in effect prior to the crisis of 1931, with some further liberalizations and without increasing the rates of contribution. In March, 1934, the accumulated debt of the insurance fund to the Treasury was Â£106,000,000. Existing borrowing powers of the fund were repealed by the act of 1934. Provision was made for temporary loans from the Treasury, but these must be repaid within a limited period from ordinary revenues of the fund. An Unemployment Insurance Statutory Committee was set up at the same time with power to examine the finances 18 of the fund at the end of each calendar year and to recommend measures for restoring the balance of income and expenditure, if it appears at any time that existing revenues will not be adequate to meet the fund's obligations. The existing debt is to be paid in semi-annual installments of Â£2,500,000 to cover principal and interest at 3.125 per cent. Under this arrangement, it is anticipated that the debt will be repaid in about 37 years. German Efforts Compulsory unemployment insurance was placed in effect in Germany in 1927. Prior to that time outright doles had been paid by the government to workers who could not obtain positions by their own efforts or through the highly organized system of employment exchanges. The act of 1927 covered four-fifths of the entire working population. It included all low wage and salaried workers and certain classes of agricultural laborers. This wide coverage, however, was found to be so expensive that in October, 1929, certain classes of agricultural and casual workers were excluded. The 1927 act called for a compulsory contribution of three per cent of the payroll divided equally between employer and employee, with no contribution from the state. In January, 1930, the contribution was raised to three and one-half per cent, in July to four and one-half per cent and in October to six and one-half per cent. The rate has since been reduced to six per cent. Whereas in England the unemployment benefit has always been a flat rate, all adult males being entitled to a specified sum, women and children receiving a somewhat lower amount, Germany pays a graduated benefit scale, varying with the salary class of the worker and the number of his dependents. Standard benefits range from 75 per cent of wages in the lowest class to 35 per cent in the highest class. The waiting period varies with the age of the worker and the number of dependents. For workers under 21, the waiting period is 14 days; over 21, it is seven days, and for workers with more than three dependents the waiting period is only three days. Under the original act the benefits were to continue for a maximum period of 26 weeks. This has been reduced, however, until the maximum standard benefit period is now only six weeks. "Crisis benefits" are paid to those whose claims to standard benefits have 19 run out, payable four-fifths from the national treasury and one-fifth from the localities. It was estimated in 1927, when the first act was passed, that the number of unemployed would average about 700,000 a month. The average for the first three years turned out to be 1,143,000 a month. A contribution of about $27,000,000 was made to the fund by the Reich when the original law was passed. This enabled the fund to remain solvent until January, 1929, when it became necessary to borrow from the national treasury. By June, 1929, the fund's borrowings totaled more than $65,000,000 and by December they had amounted to $80,000,000. Restrictions were imposed upon the payment of benefits, but the fund ran still further into debt, and in April, 1930, the Reichstag voted to grant the fund an annual subsidy equal to one-half its deficit. The remainder of the deficit must be made up either by increasing contributions, reducing benefits, or by some other such measure. In Germany provision for the relief of unemployment was separated at the start from unemployment insurance. Greater care has been taken to maintain the solvency of the insurance fund and the deficits incurred have been due primarily to abnormal conditions of depression. Old Age Pensions Old age pension legislation has been before the Congress for several years. The Dill-Connery bill for a Federal subsidy to state old age pension systems was passed by the Senate in June 1934 but was later reconsidered because of the President's desire that the whole subject be deferred pending study by a Federal commission. The Congress, however, in June, 1934, enacted the Dill-Crosser bill, providing a system of retirement pensions for railroad employees. This act has been held to be unconstitutional in a decision by the Supreme Court of the District of Columbia. The Court held that the Congress had exceeded its powers under the commerce clause by making the legislation applicable to all railroad employees including those not engaged in interstate commerce. Approximately 460,000 employees of the Federal government are already covered by retirement schemes. On June 30, 1934, about 40,000 persons were receiving pensions under the Federal Employees' Retirement Act of 1920, the Lighthouse Retirement Act, and the Canal Zone Retirement Act. The average annuity paid under the first of these acts was $965.16. Some of the states have established pension plans for such special classes of employees as teachers and judges, and retirement systems for policemen are in operation in some 500 municipalities. Most of these Federal, state, and municipal schemes represent compulsory old age insurance, funds being accumulated from contributions from employees as well as grants from public treasuries. The system of war pensions, although seldom recognized as such, constitutes another form of Federal contribution to the support of the aged and their dependents. State Pension Plans The old age pension movement in the states has made tremendous headway during the last four years. Seventeen of the 28 states which now have old age pension laws on their statute books had no such legislation in 1930. All present state laws are on a non-contributory basis. The pension system of one state Delaware is administered by a state agency. In Iowa, Maine, Michigan, New York, Ohio, and Pennsylvania administration is by county boards acting under state supervision. In the remaining 21 states the law is administered by county authorities. Seven states pay the entire cost of their pension systems Colorado, Delaware, Iowa, Michigan, North Dakota, Ohio, and Pennsylvania. Nine states pay from one-third to two-thirds of the cost. In twelve states the entire cost is borne by the counties. The old age pension laws of 22 states have not been made mandatory on the counties and the laws of two others West Virginia and Wisconsin became mandatory this year. The laws of the four remaining old age pension states Kentucky, Maryland, Montana and Nevada are optional with the counties, constituting little more than enabling acts. In 14 states applicants for pensions must have reached 70 years of age. In 13 states the age limit is 65 and in one state North Dakota the age limit is 68. The required period of residence in the state varies from five years in Delaware to 35 years in Arizona. A majority of the states, require residence of 10 to 15 years. In addition most of the states have established citizenship requirements. The provisions of the existing old age pension laws of the states are summarized in the following table: 20 21 Main Provisions of State Old Age Pension Laws Pension' Maximum Residence Maximum property and State able age Pension Requirement income limitations (years) Ariz...... 70 830 a month 35 Income, $300 a yr. Calif..... 70 $1 a day 15 Assets, $3000 Colo...... 65 $1 a day 15 Assets, $2000 Dela...... 65 $25 a month 5 Idaho ____ 65 $25 a month 10 Income, $300 a yr. Ind....... 70 $180 a year 15 Assets, $1000 Iowa ..... 65 $25 a month 10 Income, $100 a yr. Ky....... 70 $250 a year 10 Income, $400 a yr.; Assets, $2500 Maine .... 65 $1 a day 15 Assets,$300 Md....... 65 $laday 10 Mass..... 70 No limit 20 Mich..... 70 $30 a month 10 Assets, $3500 Minn..... 70 $laday 15 Assets, $3000 Mont..... 70 $25 a month 15 Income, $300 a yr. Neb...... 65 $20 a month 15 Income, $300 a yr. Nev...... 65 $laday 10 Assets, $3000 N. Hamp.. 70 $7.50 a week 15 Assets, $2000 N. Jersey. 70 $laday 15 Assets,$3000 N. York.. 70 No limit 10 Wholly unable to support self N. Dak.... 68 $150 a year 20 Income, $150 a yr. Ohio ..... 65 $25 a month 15 Assets, $3000 ($4000 if married); Income $300 a yr. Oregon ... 70 $30 a month 15 Assets, $3000 Penna. ... 70 $30 a month 15 Utah ..... 65 $25 a month 15 Income during past year, $360. Wash..... 65 $30 a month 15 Income during past year, $360 W. Va. ... 65 $1 a day 10 Any property or in- come Wise...... 70 $laday 15 Assets, $3000 Wyo..... 65 $30 a month 15 Income, $360 a yr. At the end of 1933, a total of about 115,500 persons were receiving pensions under state old age pension laws. The total paid in pensions during the year was approximately $26,000,000, or about $18.75 per pensioner per month. Increases in numbers of pensioners were recorded in most states in 1934, but this trend was discouraged by failing resources of the counties or exhaustion of fixed state appropriations. The cost in 1934 is estimated to have been in the neighborhood of $30,000,000. Foreign Countries Old age insurance or pension systems are now in force in 40 foreign countries. Denmark was the first country to establish a gratuitous pension system, such as is provided by American state laws, under which the entire cost is borne by the government, benefits being paid to all persons reaching a specified age without other means of support. The Danish system, adopted 22 in 1891, has been followed by about a dozen other countries. The first compulsory system of old age insurance was adopted in Germany in 1889, and this system has been adopted by 28 countries, including most of the important countries of Europe and a few in Latin America. Under compulsory insurance plans contributions to a general fund are made by two or more of three parties employees, employers, and the state. Benefits are paid by the state, which administers the fund, to all employees reaching a specified age, regardless of need. Some of the compulsory schemes, particularly in Latin America, cover only special classes of employees, but in practically all of the important industrial countries the entire wage-earning population is covered. The pensionable age under foreign plans varies from 50 to 75 years. The prevailing age limit is 60 to 65 years, but this often varies with sex and different types of occupations. For more hazardous occupations, such as transportation and mining, lower age limits than for less hazardous ones are often set. Contributions are made either as a certain percentage of wages or as a definite sum of money to be contributed either weekly or monthly. Public contributions to insurance funds are either proportioned to the contributions of the insured and their employers or are in the form of grants representing definite sums of money per insured or lump sums transferred periodically to the insurance fund. Old age benefits are usually established at a point which will provide merely the bare necessaries of life, or at the most a minimum of comfortable subsistence. As this varies widely from country to country, and even between economic groups in the same country, the amount of benefit paid in different countries and for different groups of persons in the same country shows great variation. With a few exceptions, the benefits are considerably lower than the wages earned before old age retirement. Most of the old age insurance systems make provision for dependent survivors, widlow or widower, orphans, parents and others. The usual amount of the widow's benefit is one-half the benefit of her deceased husband. All insurance systems provide that the total benefit for survivors may not exceed the benefit of the deceased. Widows' Pensions Pensions to mothers is the one field of social insurance in which the United States has taken